Ryan v Lyondell: Good Faith Reappears

On July 29th, 2008, Vice Chancellor Noble published his opinion in Ryan v Lyondell.  The Vice Chancellor denied summary judgment on a claim by shareholders that the management of Lyondell Chemical has sold the company to Basell AF for an inadequate price.  The Lyondell shareholders received cash representing a forty-five percent premium to the price before the public knew of the negotiations.  The opinion is a shocker.  Given the facts I would have expected, absent a duty of loyalty claim (the loyalty claims did not survive summary judgment) that the judge would have applied the business judgment rule to the residual duty of care claims, modified by the 102(b)(7) clause in the charter, to grant the summary judgment absent evidence of reckless or intentional acts by management that injured the company.  The judge denied summary judgment on the basis that the board's failure to canvass the market for other buyers and its agreement to sign deal protection measures may have violated the "duty of good faith," which was excepted from the 102(b)(7) clause.  I had thought that the Delaware courts had said that good faith was essentially a restatement of the obligation of the duty of loyalty and these claims were not loyalty claims.  Under the court's reasoning, any acquisition of one independent company by another can survive a motion for summary judgment based on the simple claim that the price was too low as the result of an inferior market canvass of other potential buyers.  Creative plaintiffs lawyers will now be able to get most acquisition cases to trail.  The error is compounded by the Court's use of Revlon.  Revlon, I had thought, erroneously perhaps, only applies when a board favors one bidder over another and the favored bidder is offering a lower price to shareholders.  There were not two bidders in this case--there was one.  The existence of the second, disfavored bidder, was necessary to trigger a Unocal type problem (where directors protecting their positions?) and Revlon was a subset of the Unocal doctrine.  Now Revlon has jumped outside Unocal and applies to all acquisitions, imposing a duty of good faith that allows plaintiffs to defeat summary judgment motions in ordinary duty of care cases. This case needs to be reconsidered; it has the potential of changing completely the legal analysis of very straightforward acqusitions between independent parties.  The case will all go to trial and a judge will decide, de novo, whether she likes the negotiating and approval process of the target board (why not the bidder board as well??).  Surely, I am not alone in seeing the mess this makes of Delaware law.